Sunday, October 2, 2011

Interns raise aggregate employment levels and GDP?

The UK currently has excess unemployment AND inflation well above the 2% target. My guess is that the Bank of England is right in thinking the excess inflation is temporary (because of the surge in world commodity prices, etc). But suppose the inflation spike is NOT temporary. Do we condemn an excessive proportion of the workforce unemployment? The answer is “no”. There is a way out.


Interns work for little or nothing (apart from what they get from benefits, if anything). Now what’s the aggregate effect of interns? E.g. do they simply replace regular or “normally waged” employees on a one for one basis? If the latter is the case, then the aggregate effect of interns on employment levels and GDP is zero or thereabouts.

However, there is a way in which interns actually raise employment levels and GDP, which is thus.

Inflation takes off when employers find it so difficult to obtain suitable labour that employers start bidding up the price of labour (or the price of most types of labour). However, if labour is available for free (as is the case with interns), that makes up for their unsuitability. Ergo NAIRU falls. Ergo employment and GDP can be expanded.

Now any old fool can think of flaws in that argument as it stands. But I can think of remedies for the flaws . . . . . . . . . . . see here.


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